Cautious optimism: the market integrates previous dynamics and rules of the game

Valeriia Pekin, Director of Corporate Process Development and Communications, Fenix Agro

ABOUT 2023/2024 MY

Recovery of the grain corridor: A month before the end of the marketing year, Ukraine's actual grain exports amounted to 48.381 mln tons, which is 3.5% or 1.633 mln tons more than in the same period of the previous marketing year. This confirms Ukraine's status as one of the world's leading exporters of agricultural products. The government states that after two years of full-scale war, it has managed to maintain production and export of major crops, thanks to the resilience of agricultural producers and the development of new logistics solutions.

Over the past eleven months, Ukraine has exported

• Ukrainian wheat - 17,839 thousand tons
• Ukrainian barley - 2,437 thousand tons
• Ukrainian corn - 27,570 thousand tons.

This was undoubtedly due to the fact that in August 2023, Ukraine opened a new sea route from Odesa, which replaced the grain agreement after Russia withdrew from it. It allowed Ukraine to significantly increase its maritime exports. Given the actual exports by month, Ukraine has reached the pre-war level of exports, and the market has integrated the past dynamics and rules of the game.

New logistics routes: After the termination of the Black Sea Grain Initiative in July 2023, Ukraine developed new routes across the Danube River and transit routes through the EU, which helped to mitigate logistical problems. Export volumes through these ports are 1.2-1.8 million tons per month. This export corridor continues to be important for the stability of Ukraine's agricultural exports.

Government support for the agricultural sector: In 2024, the government allocated UAH 4.2 billion to support the agricultural sector, including partial compensation for the cost of agricultural machinery, subsidies per hectare of land in the de-occupied territories, and loans to farmers.

Changes in transportation costs: In 2024, there will be a decrease in tariff rates for grain transportation for all types of distances compared to 2023.

Changes in tariff rates in 2024 compared to 2023:

• long distances: Decreased from 1340 UAH/t to 1231 UAH/t (down 8.1%).
• short distances: Decreased from 470 UAH/t to 378 UAH/t (down 19.5%).
• medium distances: Decreased from 843 UAH/t to 747 UAH/t (down 11.4%).

* Джерело: Fenix Agro

ABOUT THE NEW SEASON

Production: In mid-June, the Ministry of Agrarian Policy of Ukraine predicted that the gross harvest of grains and oilseeds in 2024 will be about 78 million tons. This is about 5% less compared to the 2023 harvest of 82 million tons.

Grain harvest is expected to be as follows:

• Wheat - 21 million tons (in 2023 it was 22.2 million tons),
• Barley - 4.9 mln tons (5.7 mln tons in 2023),
• Corn - 28.5 mln tons (in 2023 - 30.5 mln tons).

As for oilseeds, the following figures are forecasted:

• Soybean production - 5.2 mln tons (4.7 mln tons in 2023),
• Sunflower production - 13 mln tons (in 2023 - 12.9 mln tons),
• Rapeseed production - 4 million tons (in 2023 - 4.7 million tons)

Interestingly, this forecast is 4 million tons more than their April vision, where the decline in harvest was 10% and took into account only the reduction in acreage, and did not take into account the negative May weather factor, which should have reduced the forecast of gross harvest.

According to the forecast of the U.S. Department of Agriculture (USDA), the harvest of grains and oilseeds in Ukraine for 2024 is as follows:

Grains:

• Wheat: production is expected to reach 19.5 million tons.
• Corn: harvest is expected to reach 27.7 mln tons.
• Barley: is forecast at 5 million tons.
• Other cereals: approximately 1.8 million tons

Oilseeds:

• Sunflower: production is forecast at 14.7 million tons.
• Soybeans: harvest is expected to be within 5.5 million tons.
• Rapeseed: production is forecast at 3.7 mln tons.

That is, at the beginning of the season, we have a significant difference in views on the prospects for the new harvest between the two agencies: Ukraine and the USA.

Exports and processing: In the new marketing year, which started in July 2024, Ukraine can export more than 60 million tons of grains, oilseeds and their processed products.

Significant changes are expected in wheat exports, as due to the decline in production, we expect a reduction in its exports - to 13 mln tons, which is 28% less than in 2023/2024 MY. Due to the large carry-over stocks of corn, the exports of this grain may suffer the least losses compared to the previous season.

Given the increase in the soybean harvest and permissible carry-over stocks, soybeans are expected to be actively exported from Ukraine. Thus, according to the forecast, soybeans are the only crop that will increase in exports - up to 3.5 million tons.

Processing of grains and oilseeds has been reduced for objective reasons related to the military operations in the country and the general economic stagnation and energy problems.

Feed consumption: The military conflict in Ukraine has led to the loss of a significant number of cattle, pigs and poultry. The reduction in the number of animals directly affected the need for feed. Despite the forecast of an increase in the number of cattle, pigs and poultry in the industrial sector in 2024, and based on the actual number of livestock in the livestock sector as of January 1, 2024, we expect a decrease in feed consumption.